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From The Sunday Times

October 8, 2006

Has improve beaten move?

The housing market is grinding to a halt, with sales near all-time lows. Rises in stamp duty are to blame, says Graham Norwood

We have become a nation of stay-at-homes — thanks to chancellor of the exchequer Gordon Brown and television presenter Sarah Beeny and her ilk.

Figures show once-mobile British householders now move home on average just once every 16 years, despite low interest rates and a decade of soaring house prices — similar to levels during the depths of the recession of the early 1990s and half as often as they did during the housing boom of the late 1980s.

The reason for the slowdown? The cost of moving has soared thanks to high levels of stamp duty introduced by Brown, and we are instead building extensions and undertaking dramatic refurbishments as promoted by Beeny and her fellow makeover experts.

Nicola and Tim Oddy, and their three children aged 4 to 14, who live in a hamlet near Port Isaac, Cornwall, are a typical family who wanted a bigger house but could not find one for sale. Instead, they found it cheaper and easier to extend their existing home.

“Availability was the big issue. We felt we would have to wait years because so few were on the market,” says Nicola, a businesswoman. “Then we compared the cost of moving with turning our house into a dream home and plumped for an extension.”

She and Tim, a management consultant, turned their home from a four-bedroom, one-bathroom house into one with seven bedrooms and four bathrooms. “To have found a property like the one we have created would have been almost impossible,” she says.

The couple’s experience is mirrored by those of tens of thousands of other people around the country.

“It’s incredibly costly to move. About 80% of us move within a 20-mile radius, so we don’t find bargains in lower-priced areas,” says Richard Donnell, head of research at property consultancy Hometrack, which has collated the figures on move frequency. “Therefore we have to stump up vast sums for stamp duty with no obvious advantage.”

The consequence is that the housing market is grinding to a halt. Fewer homes are on sale than at any time since the mid-1990s, and as demand exceeds supply, so prices rise. Hometrack says prices in England and Wales went up by 4.3% in September, the biggest monthly hike in two years.

Stamp duty is calculated in what economists call “slab style” and is applied to the entire price. So a home costing £250,000 attracts 1% duty, equalling £2,500. Add another £10,000 to the price and you have to pay 3% on the lot, making £7,800.

Research by the Woolwich building society, using Land Registry house- price figures, shows the cost of moving from an average semi to a detached house has almost tripled from £4,535 in spring 2000 to £12,535 today. House prices have risen a more modest 70% over the same period.

“At the top end of the market, people are unsettled by headline numbers like £25,000 to move,” says Andy Gray, head of mortgages at the Woolwich. “At these levels, people are thinking seriously about extending.”

The cost of moving is especially high in London and the southeast. “In 2005 in London, 45% of purchases were of homes in the 3% and 4% stamp duty bands. In southeast England, it was 30%,” says Donnell. Buyers in London pay more than £7,700 stamp duty on average compared with only £1,500 in 2001, he claims.

Brown introduced higher rates of stamp duty for more expensive homes in his first budget back in 1997. He has increased the rates three times but has left the higher thresholds unchanged at £250,000 and £500,000.

Recent changes to minimum thresholds for the 1% rate of duty — up from £60,000 to £120,000 in 2004 and then to £125,000 last year — have cost the government little because so few properties today fall into the exempt band.

“The average first home now costs £148,000, more than £22,000 above the new threshold,” says Matthew Wyles, a director of Portman building society and author of several reports on stamp duty, which he calls “a deeply unfair tax”.

Milan Khatri, chief economist at the Royal Institution of Chartered Surveyors, says that, ironically, people may have been more willing to move when the economy looked more volatile in the late 1980s than in the affluent, stable new millennium.

“There was high inflation, so although it cost money to step up the ladder, there was a belief that higher wages and soaring house prices would soon overtake any short-term difficulty,” he says. “That belief isn’t there any more.”

The repercussions are not confined merely to frustrated home owners and disgruntled estate agents, but extend to the economy as a whole. “The government’s creating a time bomb,” warns Donnell. “We don’t move so we do up our houses and expect ever-higher prices when we sell, stoking inflation and risking a crash.

“It may just be stamp duty but it’s growing into a social and demographic monster. Something’s got to be done to get Britain moving again.”

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Has improve beaten move?

The housing market is grinding to a halt, with sales near all-time lows. Rises in stamp duty are to blame, says Graham Norwood

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